AI infrastructure frenzy pushes up long-term interest rates, and Bitcoin faces new macro headwinds

According to Woofun AI, capital requirements for artificial intelligence (AI) infrastructure construction are evolving into a new macroeconomic disadvantage for Bitcoin, and its influence has gone beyond a simple US Federal Reserve interest rate hike cycle. This structural change means that even if monetary policy shifts to easing, the upward pressure on long-term interest rates caused by tech giants will continue to suppress risk premiums for assets with no cash flow. The core contradiction is that huge investments in AI are reshaping the logic of global capital allocation, causing Bitcoin to face unprecedented macroeconomic headwinds as it competes for limited liquidity.

The minutes released by the Federal Reserve from September 15 to 16 revealed the microscopic basis of this macro-picture. The minutes clearly state that market participants have observed that huge private debt issuance for artificial intelligence infrastructure construction has become a key driving force driving up US Treasury bond yields and long-term bond premiums. During the two sessions, the nominal yields of all types of bonds, from 2-year to 10-year terms, increased by about 35 basis points.

This data certainly adds significant uncertainty to cryptocurrency investors who are mainly concerned about when the Federal Reserve will stop tightening its policy. The Federal Reserve raised the federal funds rate target by 25 basis points to between 3.75%-4% in September, and most officials thought it might be appropriate to raise interest rates again before the end of the year. Even after this cycle of interest rate hikes is over, continued competition for long-term financing may keep borrowing costs at a high level, which is not directly related to overnight policy interest rates. The current large scale of financing needs is enough to cause policy makers to be highly alert, indicating that the root cause of rising interest rates has partially escaped the control of traditional monetary policy.

According to data compiled by Woofun AI, the Bank for International Settlements estimates that between 2025 and 2026, the five major tech giants will have a total capital expenditure of more than $1 trillion in fields related to artificial intelligence. According to industry forecasts quoted by the bank, the current global investment scale in the field of artificial intelligence is about 500 billion US dollars, and this figure is likely to rise to between 3 trillion US dollars and 4 trillion US dollars by 2030. Most of the early construction capital probably came from corporate cash flow, but as some companies spent faster than the profitability and free cash flow shown in financial reports, they had to rely more on bonds and private credit to raise capital.

The Bank for International Settlements pointed out that as companies build data centers, procure chips, and build energy infrastructure, the share of debt in the overall financing structure continues to rise. The head of the Federal Reserve's trading department said that due to the large scale and long term of loans, interest spreads on bonds issued by major cloud service providers are still at a high level. Market participants also pointed out that capital competition brought about by private debt issuance in fields related to artificial intelligence is also one of the reasons driving up the US Treasury's long-term bond premium. The minutes of the meeting did not clearly state how much of this approximately 35 basis point increase in yield was due to AI-related financing activities.

Furthermore, strong economic data, expectations of further policy tightening, developments in the geopolitical situation, and uncertainty about whether the US Treasury will repurchase bonds are also seen as factors affecting the rise in yield. However, even if the policy interest rate cycle ends, this mechanism may still cause problems for Bitcoin.

According to data from the US Treasury, the 10-year Treasury note yielded 5.28% as of October 7, while the 10-year yield adjusted for inflation was 2.92%. This level means that investors can already reap considerable returns from government bonds before taking on Bitcoin's volatility and maximum retracement risk. For cryptocurrencies, this means that the required risk-reward ratio will also increase.

If the Federal Reserve suspends interest rate hikes, although short-term interest rates are expected to fall, if companies continue to fiercely compete for financing resources, then long-term interest rates may not be similarly mitigated. The Federal Reserve also said that during the two meetings, the main reason for the increase in long-term treasury yields was the change in real yields.

This difference is important for Bitcoin because the real rate of return reflects the actual return after deducting inflation, which makes the competition between Bitcoin, which has no fixed cash flow, and securities that provide positive inflation-adjusted returns even more intense. Currently, stocks related to artificial intelligence seem to be able to comfortably withstand higher financing costs. The Federal Reserve pointed out that companies directly benefiting from infrastructure construction performed better than the overall market. Despite declining valuation multiples, strong actual profits and expected profits still support stock prices.

The longer-term risk is that this investment boom may expand production capacity excessively. The Bank for International Settlements warns that the current boom in artificial intelligence is one of the largest waves of technology investment in US history. According to the bank's analysis, in order to compete for future market share, companies may invest more capital than their actual return capacity, while higher debt levels will increase financial pressure. Once revenue expectations fall short, companies may be forced to sell assets. This will bring about another very different Bitcoin development scenario. Arthur Hayes, co-founder of the defunct BitMEX exchange, believes that the data center construction competition will eventually lead to an excess supply of computing power, which in turn will cause a downturn in the market. He has pointed out many times that major technological promotions in history often lead to overcapacity, and he expects financial pressure to occur when the new computing power is put into use, that is, at the end of 2027 or around 2028. His Bitcoin investment views began at the end of the current yield pressure.

If a failure in the field of artificial intelligence threatens infrastructure operators that have invested large sums of money, Hayes believes that policymakers will eventually provide liquidity support, and he believes that such an environment will facilitate the development of Bitcoin and other cryptocurrency assets. Of course, this is still a speculative opinion. Demand in the field of artificial intelligence is also likely to grow rapidly enough to absorb the infrastructure being built, while higher productivity and profits may justify these investments before the debt burden becomes serious.

Despite this, the Bank for International Settlements believes that the current financing structure is genuinely vulnerable. As companies' investment commitments increasingly exceed their internally generated cash flows, future returns are increasingly important for companies to repay capital raised for infrastructure construction. For Bitcoin investors, what they need to pay attention to now is not at what meeting the Federal Reserve will actually stop raising interest rates, but how the actual yield will change in the long term.

If 10-year treasury yields and long-term bond premiums continue to fall, the view that “capital demand in the field of artificial intelligence is causing the financial environment to remain tense” will become unconvincing. However, there is still strong spot demand for Bitcoin in a high-yield environment, which also shows that investors are willing to accept higher opportunity costs. The opposite situation would adversely affect the cryptocurrency market.

If artificial intelligence-related borrowing activity continues, combined with higher real yields, then even if monetary tightening has reached its peak, treasury bonds and corporate credit will compete fiercely for limited capital. The Federal Reserve's next meeting is scheduled for October 27-28, when policymakers will still focus on inflation and whether to raise interest rates again before the end of the year.

However, for Bitcoin, the bigger test may have to wait until after the last rate hike. If the investment boom in the field of artificial intelligence continues to drive up long-term treasury bond yields, then the interest rate easing effect expected by traders due to the suspension of interest rate hikes by the Federal Reserve may be weaker than in the previous cycle. And if this investment boom eventually comes to an end, investors will be watching closely to see if the kind of liquidity support measures that Hayes anticipates will occur due to financial stress.